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Finding Reality In Europeâ€™s Space Sector

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Much has been said about the emergence of new players in the space sector and the need for Europe to revamp the way it allocates its resources, starting with the “rule of geographic return.” This applies primarily to the launcher segment, where SpaceX's Falcon 9 rocket is perceived as a major threat to Arianespace's commercial supremacy. Suddenly there is a sense of urgency—if only the slightest—in the European establishment. Should we improve Ariane 5? Should we move to Ariane 6 (shown) as soon as possible? How can we get the price of a launch down to $90 million, from more than $130 million today? These are important questions, not least for the thousands of jobs involved. But they miss the point in several respects.

First, Space X still has a long way to go to become a fully fledged competitor in the mainstream commercial launch market. The company is still in the start-up phase, and industrializing the business will be a whole new game. In fact, it is not the first time a player has come up with a significantly discounted price.

In the early 2000s, Proton and Sea Launch brought launch prices down 40%, taking significant market share from Arianespace. But after several failures, prices went back up to their previous level, and Arianespace was back on top. The impressive track record of Ariane 5 (and of Ariane 4 before it) will not be easy to match, although it is certainly not a reason for Europeans to remain complacent, and it does not change the fact that the Ariane system should be much more cost efficient.

Second, SpaceX is a remarkable venture for what it stands for—entrepreneurship, boldness, long-term vision, derring-do—but in the commercial launch market, it is just another player trying to break through. Even the idea of reusable engines has been thought of before by industry incumbents. To be truly disruptive, an innovation must either lead to a new application outside the mainstream market or to a new business model targeted toward the least-demanding customers. Yet SpaceX has been targeting mainstream customers such as NASA or multinational satcom service providers, with a fairly standard value proposition.

In fact, what is truly disruptive in the space industry is not happening with the launchers themselves but rather with the rapid development of mini-satellites. This changes radically the economics of launching objects into space and therefore the kind of technology involved. Hence, many new innovative launch ventures have popped up to accommodate such payloads, among them S3 (Swiss Space Systems), which is designing a shuttle to be launched from the back of an Airbus A300, or GOLS (Generation Orbit Launch Services), which is using a Gulfstream G-III private jet to launch a small missile able to carry a 40-kg (88-lb.) payload, for a target launch price of $1 million.

Other significantly disruptive innovations include the recent development of a standard and modular nanosatellite architecture called cubesat that allows satellites to be built using almost exclusively commercial, off-the-shelf components, with the possibility to assemble several of them together, for a price below $500,000 apiece.

Such innovation itself has triggered a flurry of new service ventures with interesting value propositions, making Google Earth almost look like a dinosaur. California-based Skybox Imaging, for example, raised close to $100 million to launch a new generation of low-cost, sub-meter Earth-observation mini-satellites and data analytics services.

These examples provide a reminder that, in the space sector, downstream services are by far where the stakes are the highest: They account for 85% of the overall $100 billion-plus annual space market value, versus 10% for satellites and only 5% for launchers.

So instead of asking themselves whether they can afford a new launcher or a new $500 million satellite, Europeans should focus their energy and resources on promoting a dynamic service sector. More than anything else, Europe needs dedicated, competitive and innovative service players, which ultimately will offer the only guarantee that there will be a sustainable demand for more satellites and launchers.

Innovation in the space sector is thus not where it seems to be, and competitiveness is certainly not only about the cost of launchers. It is also about making sure new applications are developed, new markets are created, and fully fledged service players are given the support and credit they deserve for making space not only a boxing ring for egos but a truly dynamic and open marketplace.

Contributing columnist Antoine Gelain is the A&D practice leader at Candesic. He is based in London.